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Why some companies are forging ahead with cloud investments

Bynewsmagzines

Apr 13, 2023
Why some companies are forging ahead with cloud investments

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This article is part of a VB special issue. Read the full series here: Data centers in 2023: How to do more with less.

The retail industry is changing so quickly that no CIO can afford to miss an opportunity to gain a competitive edge on costs, insights and speed. A typical retailer generates tens of thousands of real-time digital transactions across various channels. Legacy infrastructure and applications and dated on-premise data centers struggle to scale and secure all this traffic.

Retailers can’t let data centers become roadblocks to revenue growth, especially with more CIOs expected to make greater revenue contributions. While many CIOs’ roles were once limited to prioritizing cost-cutting and efficiency, this is rapidly changing. For any CIO to grow their career, they must demonstrate that they and their teams can generate revenue by combining business strategy and IT. They need to be strategists first and technologists second, with a clear sense of where customers’ digital experiences need to go for their companies to stay relevant.

The best business cases balance cost reduction and revenue growth 

A successful business case for cloud migration balances cost reduction, revenue growth from new digital initiatives, and faster access to innovations and vertical expertise. Revenue contributions from data centers help CIOs achieve better results and faster payback.

Finding innovative ways to get greater value out of customer data is a growth catalyst for data center spending, over and above cost reduction alone. Another growth driver is the scalability of cloud platforms, which can flex and adapt to changing operational efficiency needs. The Home Depot, for example, is taking advantage of this adaptability for its supply chain operations.

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Because of these factors, the global data center market, estimated at $220 billion in 2021, is expected to grow at a compound annual growth rate (CAGR) of 5.1%, reaching $343.6 billion by 2030.

For its part, the data center services market, valued at $48.9 billion in 2020, is expected to reach $105.6 billion by 2026, growing at a CAGR of 13.69%. What’s behind that forecast? Factors include innovations that increase data center performance and scale; advances in hybrid cloud; solid-state storage; DCIM; and sustainability-based improvements that will further reduce costs and increase efficiency. McKinsey found that by 2024, the average company intends its cloud spending to account for 80% of its total IT-hosting budget.

As the cloud proves its value, 40% of companies expect to accelerate cloud implementations. Source: Cloud-migration opportunity: Business value grows, but missteps abound. McKinsey & Company, October 12, 2021

No one wants to lose a step on competitors 

Many retailers’ data centers are designed to support predictable customer behaviors, known buying cycles and long-standing customer preferences. Data centers assumed customers wouldn’t change, wouldn’t want personalized products or buying experiences or the freedom to buy through any channel at any time and get the excellent service, scale and speed they expect. 

Amazon’s online buying experience is still considered the gold standard, the model for all retailers pursuing an ecommerce strategy. VentureBeat has been in over a dozen virtual meetings and conference calls with leading retailers and distributors, and they have explained how challenging it is, for example, to get one-click ordering to work for a single product when a retailer’s data centers and systems are designed for bulk-load electronic data interchange (EDI) transactions that stream in nightly. 

Data centers can’t afford to run at bulk-load speed in real time. CIOs tell VentureBeat that that’s one of the main factors driving them to double down on cloud platform investments. No one has ever cost-reduced themselves into market leadership. Retail is one of the most inventory-dependent businesses, so finding new ways to make every aspect of supply chain management, warehousing, fulfillment and returns efficient directly contributes to gross margin growth.

That’s what’s driving the most successful business cases for migrating data centers to the cloud. It’s essential to attain the scale and speed to drive efficiency so well that it positively affects inventory. Migrating workloads to the cloud for cost alone is a challenging and time-consuming process and it’s difficult to get any appreciable ROI. The primary goal needs to be revenue upside potential driven by greater efficiency. 

On the fast track to vertical expertise

Data centers are not adapting fast enough to keep up with the way customers are changing how, where and why they buy. CIOs are understanding that moving workloads to the cloud, combined with the necessary vertical expertise, can turn this potential liability into a strength.

“We have most workloads running on AWS, and we talk to them about creating fit-for-purpose offerings for financial services,” said Ken Meyer, Truist Financial Corp chief information officer for consumer technology. “We work with Microsoft in the insurance space, and their financial services offerings go to multiple verticals. And we’ve leveraged Google’s Apigee platform because they’re leaders in open banking.”  

Public cloud providers know that if they’re only known for storage and compute, they’ll become commoditized, and every cloud platform provider will compete on price and availability. The race is on to differentiate in vertical expertise. That’s a valuable service most CIOs look for as they continue moving workloads to the cloud and building out hybrid cloud infrastructure. AWS offers 19 industry-specific solutions, Microsoft’s Azure platform offers nine, and Google offers 21 industry solutions.

Cloud-based vertical applications are a major draw.
McKinsey predicts the retail industry will see a 1.5-fold jump in public cloud spending dedicated to vertical applications alone. Source: Cloud-migration opportunity: Business value grows, but missteps abound. McKinsey & Company. October 12, 2021

Migrating the data center to the cloud to be more competitive 

The race is on to innovate faster than competitors and keep customers, who have more choices of brands and buying experiences than ever before, brand-loyal. Data centers are now part of the competitive mix for any retailer, as they are crucial for keeping the heartbeat of any retailer robust. 

Real-time data is crucial to keeping a revenue stream moving, especially for new digital business initiatives. CIOs who build business cases that set up their teams to deliver revenue growth are managing their careers for growth.

CIOs’ old role of risk and cost reduction is being replaced with a strategic role that’s core to driving a business forward. It’s time to look at workload migration from data centers not just through a cost lens but through an opportunity lens. Migrating workloads can free up resources internally while ensuring retailers can adapt as their customers’ preferences for what, where and how to buy evolve in the years ahead.

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